A recent webinar, titled Beyond Insights 2024 Mid-Year U.S. Economic Update and hosted by Berkadia, a leading commercial real estate (CRE) company, brought together experts to discuss the relationship between macroeconomic trends and the CRE market. The event emphasized the importance of understanding broader economic factors in navigating the current CRE landscape.
Berkadia CEO Justin Wheeler provided a high-level assessment of the market at the beginning of the webinar. He noted that annual inflation remains above 2.2%, which is causing volatility in interest rates and Treasury markets. As a result, Berkadia’s business plan accounts for continued capital market volatility in late 2024.
The featured speaker was Dr. Komal S Sri-Kumar, president of Santa Monica-based Sri-Kumar Global Strategies who offered detailed analysis on Federal Reserve monetary policy and its impact on CRE investments. According to Sri-Kumar, current economic conditions are a result of post-COVID policies that were too easygoing; he also highlighted challenges facing Fed policymakers as they steer monetary policy with significant implications for commercial real estate.
Sri-Kumar stressed how closely tied real estate is to macroeconomic trends such as interest rates and long-term Treasuries; he also pointed out key factors affecting CRE for this year including upcoming loan repayments from previous years being rolled over into this one: “We have many repayments coming due in 2024 that were previously extended from last year,” said Kumar.”The question is whether these will go smoothly or if changes made by Fed will affect them.”
One crucial element impacting these trends is how quickly or gradually Federal Funds Rates are reduced – something expected after July’s meeting but not anticipated until September according to Kumar who predicts three months before another reduction occurs during December’s meeting.
Kumar outlined two possible scenarios when it comes down rate adjustments- gradual cuts would allow time observe reactions before making further reductions while major credit events like banking issues could result in rapid, successive cuts.
In terms of investment opportunities for CRE, Kumar predicts 2025 to be a “golden year” as interest rates decrease and various areas of real estate develop. He also expects the end of the “extend and pretend” era in CRE lending with an increase in secondary market transactions and office properties trading at discounts.
As economic conditions continue to impact the CRE market, staying informed about macroeconomic trends will be crucial for investors and industry professionals alike. The Berkadia webinar highlighted this important relationship between broader economic factors and commercial real estate investments.
